Taking a closer look at jobless benefit reform

Bill King says it's not clear whether extending unemployment benefits makes it more likely that a downsized worker will find another job.

By Bill King

Updated 6:48 pm, Wednesday, December 12, 2012

The idea of providing insurance coverage for those who lose their jobs was first developed in the Great Depression. Similar programs now exist in virtually all developed countries.

For most of the history of the program, the maximum length of time a person could collect benefits was 26 weeks. However, at various times during economic downturns, Congress has increased the period for benefits.

In the 2009 recession, Congress took the unprecedented action of extending the benefits to 99 weeks. This is far longer than benefits have ever been available before. Also, it appears to be far longer than other countries provide, based on my brief review.

The law had automatic reductions in the length of benefits based on the unemployment rates in each state. Currently the maximum benefits range from 40 to 73 weeks. However, the extension will expire at the end of the year and the program will go back to the old limit of 26 weeks. As a result, it has been estimated that about 2 million individuals who have been unemployed more than 26 weeks would lose their benefits and that in the next year another million will hit the 26-week limit.

Part of the fiscal cliff negotiations revolves around an extension of unemployment benefits. Democrats are arguing for a continuation of the extended benefits on humanitarian grounds or because they believe the benefits provide an economic stimulus. Republicans argue that we cannot afford such largess and that the extended benefits provide a disincentive to the unemployed to aggressively seek a new job.

Some studies have concluded that extended benefits significantly increase the unemployment rate for this reason. However, other studies have sharply disputed these findings. Ascertaining the degree to which some individuals would rather collect unemployment benefits than work is probably an impossible task. Intuitively, I cannot believe that it does not have some effect. On the other hand, I also believe the vast majority of the unemployed want to work. This view is buttressed by the fact that unemployment benefits are not generous. Benefits vary by state and the individual's circumstances, but generally are in the $400 to $500 per week range.

And regardless, it seems to me we are asking the wrong question. Unemployment benefits have always been intended to be a bridge to a new job. To me the crucial question is: Do the additional unemployment benefits make it more likely that the unemployed person will get back to work?

Proponents of extending the benefits argue that the nature of the recent recession has resulted in a longer than usual period of weak demand for labor. They see the current weakness in employment as a cyclical, low-demand-driven phenomenon and that we simply need a longer bridge. However, there is increasing evidence that at least a portion of the weak labor market is structural and not just driven by a weakness in demand. There are increasing reports of employers unable to fill positions. And for the first time since World War II, the unemployed are not overwhelmingly young people. This downturn in employment has produced more over-50 and college-educated unemployed than ever before.

While the extension of benefits for the structurally unemployed can be supported on humanitarian grounds, these changes in unemployment patterns raise the question of whether the extension will do anything to address the structural component of unemployment.

While there are state and federal job-training programs, their efficacy is disputed at best. And there is no requirement that unemployed people pursue retraining before receiving benefits.

It would be nice if we could have a thoughtful national discussion about reforming our unemployment system. However, since our politicians are more concerned about gamesmanship, we now face a deadline that precludes such a discussion. Hopefully, once we get past the exigencies of the moment and the politicians strike whatever compromise they eventually settle on, we can get back to that discussion. Otherwise, we will continue to throw money at this problem with no real metrics on whether it is doing anything to help the problem.